Blatter, 79, announced the decision at a hastily arranged news conference in Zurich, six days after the FBI raided a hotel in Zurich and arrested several FIFA officials and just four days after he was re-elected to a fifth term as president.
Blatter said an election to choose a new president for the deeply troubled organization would be held as soon as possible. A FIFA official said that could happen any time from December this year to March of next year.
“FIFA needs profound restructuring,” said Blatter, a Swiss national who has been a dominating presence at FIFA for decades.
“I have thoroughly considered my presidency and thought about my presidency and the last 40 years of my life,” Blatter, speaking in French, told the news conference.
“I decided to stand again to be elected because I was convinced it was the best option for football.
“Although the members of FIFA gave me a new mandate, this mandate does not seem to be supported by everyone in the world.”
Blatter’s decision was immediately welcomed by his most prominent critics.
European football federation chief Michel Platini, a French former international soccer star, said: “It was a difficult decision, a brave decision, and the right decision.”
Greg Dyke, chairman of the English Football Association, said it was “good news for world football”. He then asked: “Who got him? Who shot him? What happened between then (when he was elected) and now?”
“We haven’t had a squeaky clean president for many, many years,” Dyke told Sky Sports.
FIFA, which Blatter had ruled since 1998, was left reeling this week by the announcement of a U.S. investigation into alleged widespread financial wrongdoing stretching back for more than two decades.
Swiss authorities also mounted their own criminal probe into the award of the 2018 and 2022 World Cups to Russia and Qatar, respectively.
The U.S. Justice Department, the Federal Bureau of Investigation and the U.S. Attorney’s office in Brooklyn had no immediate comment.
The office of the Swiss Attorney General, which is investigating alleged criminal mismanagement and money laundering at FIFA, said Blatter’s resignation would have no effect on its proceedings. It said Blatter himself was not subject to investigation.
While Blatter was not mentioned in either the U.S. or Swiss investigations, there had been widespread calls for him to quit, mostly from Western nations. Some major sponsors also expressed misgivings about the impact of the scandal.
The European Commission’s spokeswoman for sport, Nathalie Vandystadt, said: “This is an important step but a lot of work remains. We now expect a long process of change that is needed to restore trust and set up a solid system of good governance at FIFA.”
Blatter had initially attempted to bat away the furore, relying on his extensive network of friends to hold on to power at FIFA.
Football associations in Africa and Asia had stood by him despite the scandal, saying they welcomed the FIFA funds he channeled to them for the development of the game in impoverished parts of the world.
The investigation however closed in on Blatter on Tuesday, when FIFA was forced to deny that his right-hand man, Secretary-General Jerome Valcke, was implicated in a $10 million payment that lies at the heart of the U.S. case.
But at the same time, a letter addressed to Valcke from the South African Football Association was published outlining the transaction.
Blatter became FIFA secretary general in 1981 and president 17 years later.
He survived a series of scandals including widespread accusations that Qatar bought the right to stage the 2022 World Cup in a country with little soccer history and where summer temperatures regularly top 40 degrees Celsius (104 F). Qatar has always denied any wrongdoing.
Despite calls for Blatter’s resignation after what was described as the worst day in FIFA’s history last Wednesday, when seven serving officials were arrested on bribery charges two days before the body’s 2015 election, he told delegates then: “Football needs a strong and experienced leader. One that knows all the ins and outs and can work with our partners”.
Overcoming opposition from European soccer’s governing body UEFA, which threatened at one point to boycott the Congress, he was elected for another four years. His fifth term lasted just four days.